LONDON (Reuters) - A chance to start the year again, perhaps?
World markets have come full circle, and then some, since the jolt last Friday from the U.S. killing of a top Iranian commander and Tehran’s reprisal attack on U.S. troops at bases in Iraq on Tuesday.
Fears of full-scale war between the two sides subsided yesterday as U.S. President Donald Trump and Iranian leaders appeared to downplay any further action, with Washington opting for tougher economic sanctions rather than another military strike.
The result was a full reversal of the oil price gains of the past few days, with Brent crude dropping back below $66 per barrel to its lowest since mid-December.
That’s where it sits early on Thursday, almost 9% below Tuesday’s peak.
The volte face occurred across other financial markets, too, with Wall Street’s S&P 500 rallying to record highs last night, putting it up 0.7% for the year to date.
The so-called five-day rule — the S&P 500 has ended the year higher in 80% of the past 60 years when it closed in the black on the first five trading days – will encourage some investors.
Safe havens such as Japan’s yen fell, with dollar/yen back above 109 for the first time since Dec 30. U.S. Treasuries also gave back gains, with 10-year yields climbing back to 1.88% for the first time since last Thursday.
More broadly, MSCI’s all-country stock index is now up 0.5% for the year so far.
China’s offshore yuan reached its strongest levels since August as attention switched back to the trade war détente between Washington and Beijing and next week’s expected signing of the Phase 1 trade agreement between the two countries.
Adding to the optimism and the broad rally of the U.S. dollar, U.S. private-sector job creation last month came in above forecasts and the ADP payrolls rise for December was some 220,000. The national monthly employment report is out tomorrow.
There was also some relief in German industrial data on Thursday, with industrial production in November beating forecasts and clocking its biggest monthly rise in 18 months, offsetting disappointing orders data from Wednesday.
November German trade numbers were less rosy though, with exports, imports and the trade surplus all below consensus expectations, although the numbers pre-date the year-end trade deal between the United States and China.
Euro/dollar was lower first thing, just above $1.11.
Borrowing costs in the euro area were higher this morning, reflecting the relaxation in U.S.-Iran tensions.
Analysts said that paved the way for this week’s new supply to take over as a bigger influence on direction, with France expected to auction bonds later this session. German Bund yield was at a one-week high at -0.24%, but yet to get back above last week’s seven-month high.
In European corporate news, eyes were on UK retailers after results from Marks & Spencer and Tesco.
But the update disappointed markets and the shares skidded 7% at the open.
Greeting card retailer Card Factory plunged 17% at the open after it warned over its annual core profits, blaming the general election and weak consumer confidence over the Christmas period.
Chemicals maker Sika reported record annual sales of 8.1 billion Swiss francs, but the 16.3% growth rate fell short of analyst expectations and its stock fell 2%.
Norwegian seismic surveyor TGS posted lower-than-expected fourth-quarter revenue but said first-quarter 2020 was “promising”.
A strategic alliance with Bayer lifted Evotec shares by 3%.
Italy’s transport minister told a newspaper that Atlantia must increase cuts in tollway fees proposed as part of a settlement to avoid a revocation of its Italian operating licence.
Overall, according to the latest I/B/E/S Refinitiv data, companies on the STOXX 600 are expected to report a 2.5% rise in earnings, the best quarterly performance for the region since the third quarter of 2018.
A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own.
Editing by Larry King